Banking Crisis or AML/CTF regulation: Which will impact the crypto industry more?

As the banking crisis threatens to spill into Europe with Credit Suisse crumbling after the Silicon Valley Bank and Signature Bank, the EU lawmakers have voted on a new package of AML/CTF regulations that directly affect crypto payments. Their proposed Markets-in-Crypto-Assets regulation is still not in place yet, meaning crypto is still not fully in the legal area after all these years.

We talked to Max S. Korpusov, the CBDO of FinchPay about the changing landscape of crypto regulations in the EU, investor trust and confidence in the industry, and some solutions to these challenges. His background includes over 12 years of experience working in financial services, with the bulk of his career in investment banking in American consulting companies with the most complex non-standard client requests, and today, he is employing his expertise in the crypto industry.

Banking crisis

As a professional familiar with the banking industry, could you provide insight into the current situation with crypto-friendly banks? Does it affect Europe already? Should we brace for more shocks or possibly a crisis? How will it affect crypto?

Max S. Korpusov: If the stock market is any indication, the European banks are feeling the impact of Credit Suisse stock hitting a historical low after the harrowing news of its shareholder issue. However, risk management here in the EU is taken more seriously in the banking sector, so while the fears of contagion are not entirely unfounded, it is unlikely that we will see banks collapse like in the US.

As for the impact on the crypto industry, we are already seeing the unbanking narrative picking up steam. However, let me underscore that it is a narrative. A complete divorce from fiat and hyperbitcoinization, in my opinion, is a pipe dream, as long as it needs on-ramps that are in turn reliant on the financial sector.

So you are saying that the confidence in the crypto industry is not growing because the trust in the banking sector is declining?

Max S. Korpusov: Overall, investors do not tend to hedge in on-risk assets, like crypto assets. At the same time, it is hard to argue against the fact that the crypto market is unusually bullish at the moment, considering the circumstances. So perhaps, we are indeed observing the effect that the narratives have on the market.

The crypto industry has a fair share of its own FUD factors floating around. We are firm believers in self-custody and consider it to be our competitive advantage that the client funds are not placed on third-party platforms such as crypto exchanges, where they could be blocked.

Crypto regulations in the EU

The European lawmakers are hard at work trying to tighten the screws around crypto specifically. The new anti-money laundering laws require a KYC procedure for crypto payments over €1,000. Do you think there is a double standard regarding crypto and fiat from their point of view?

Max S. Korpusov: As far as I can tell, there are two competing narratives on whether crypto should be regulated or not. One side argues that being unregulated is the point of crypto, while the other sees the future of crypto as being adopted by the masses, and embedding it into the existing financial system is necessary to this end. As a regulated virtual asset service provider based in Lithuania, a pioneer state in licensing crypto activity, you can probably guess which side we take in this argument. As a payoff, we can work with digital assets in a regulated way and provide clients with legal protection, guarantees, and official documents for each transaction.

Crypto transactions mentioned separately in the new AML/CTF rules and having a non-KYC threshold seven times tighter than with fiat transactions is something of a double standard. I suppose, this is a way for the EU lawmakers to tackle the challenge of crypto-specific regulation while the MICA is still not in place. Crypto enthusiasts take this double standard as proof that the EU is biased against the crypto industry and has this preconceived notion about its criminal use, but in my opinion, the true borderlessness of the crypto economy can be more of a deciding factor for this approach.

What do you think about the “digital euro” project? 

Max S. Korpusov: It is a major undertaking that will provide more insights into the digital asset economy, which in turn can lead to an even more transparent and clear regulatory framework for crypto.

I am confident the crypto market isn’t going anywhere even after the CBDCs are adopted. It is distinct enough to maintain the same level of interest with investors, even corporate or high net-worth individuals. We could see new ways in which fiat and cryptocurrencies can interact but other than that, crypto will still be crypto, and CBDCs will still be fiat.

Investing in crypto in 2023

The crypto market has just gotten out of 2022 which was full of seismic shocks and seems to be doing better. The EU crypto rules and crypto-friendly banks collapsing, however, may make people wary. Is now a good time to enter?

Max S. Korpusov: The climate on the traditional markets and crypto market alike is tumultuous, it’s true, but when it hasn’t been? There are always different factors of uncertainty in play and now is no different. If anything, in the EU in particular, there is a more solid legal framework than ever before surrounding virtual assets, and it will only get clearer with time. It is a question of time when crypto will have customer protections to rival regular markets.

We have several business lines, OTC deals for corporate clients and HNWI being currently the main one, and we feel optimistic about the near future in all of them: OTC, B2C, and B2B2C. The changes will not affect any of our competitive advantages, either: we will still offer a fully legally compliant pipeline, make clients’ lives easier with white-glove service, and provide OTC deals.

The decision to enter the world of crypto will be entirely yours to make but FinchPay developed a suite of solutions to help our clients with making it painless to bring this decision into reality.

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